Choose Your Benefits Carefully

Tag: Health Savings Account

For many in the American workforce, now is the time (or soon will be) to select the medical and dental benefits you are eligible for via your employer. A new player in the mix is the HSA, Health Savings Account. As you will see when you read THIS POST and the comments that go along with it, a lot of people are CONFUSED about the HSA. Some have it mixed up with a Flexible Savings Account, which is pre-tax and you have to use it up in a year.

Anyone in a FAMILY situation probably can't afford that $2500 to $3500 annual deductible. It makes more sense to have old-style insurance coverage (with a $10-$25 co-pay) that foots 90% of your bill. Most families I know couldn't take a 35-hundred dollar hit. Let's be honest. In 2006, people don't save money the way they did in 1956. It's a crapshoot. Some are comfortable with HSA, some are not. What if Junior's appendix bursts? Or Susie has to have her tonsils removed? Or if they both need eyeglasses?

Now, wait a minute --- being young and single does NOT mean an HSA is a good idea:

"One of the drawbacks of the HSA is that you have to pay pretty much full-price on any of your prescription medications until your deductible is met. Since I have a monthly prescription (for which generic is not available), this has been pretty costly for me. Additionally, under my plan, vision exams are not covered - and, eek, I didn't realize this until I got a hefty bill from my eye doctor!"

It's a swarthy swarming can of worms, trying to figure this HSA stuff out. In many cases, you may find your monthly deduction from your paycheck $200 for a family HSA and $300 for an "old-school" health insurance plan. But suppose Junior has that appendectomy. You can't put it off, and that's $3000 YOU PAY FOR OUT OF POCKET. So your HSA is wiped out.

An increased reliance on HSAs could result in an increase in the number of uninsured Americans because they won't be able to afford plans with high deductibles. HSAs provide benefits almost exclusively to high-income individuals and big businesses. "The bottom line is that what the Bush administration calls reform is actually the opposite," Paul Krugman wrote. "Driven by an ideology at odds with reality, the administration wants to accentuate, not fix, what's wrong with America's health care system."
The administration's "consumer-driven health care" model would not fix our health care system's major problems, such as "rising costs and rising numbers of Americans without health insurance." Rather, healthy people will have greater incentive to get out of traditional plans, leaving the sick to pay higher premiums and possibly leading to more uninsured Americans as they decide to stop paying prohibitively-expensive premiums. As Uwe Reinhardt of Princeton University writes, "A wholesale switch to HSAs would redistribute the nation's overall financial burden of health care from the budgets of chronically healthy families to those of chronically ill families." Second, HSAs would not reduce costs. The theory behind the accounts assumes people are willing to shop between hospitals to find the lowest price for health care. But are people willing to do this? "No," Kaiser Permanente CEO George Halvorson said flatly, "we don't buy hospital care by the hour." Finally, the Center for Budget and Policy Priorities found the "number of people who would lose coverage due to actions that their employers would take would likely exceed the number of uninsured people who would gain insurance." This is because most Americans are not in a high enough tax bracket to significantly benefit from the tax-free accounts. [Scatablog]

ANOTHER MISCONCEPTION: Your HSA is NOT like an IRA. Once you turn 65, you can withdraw the money for NON-medical expenses, but you'll be charged INCOME TAX if you do. Read up on this stuff! Don't jump off a bridge or anything...